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Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.

What If My Income Changes After I Get a Subsidy?

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Question: My income is very low right now as I am only able to find part-time work. I hope that will change sometimes but i don’t know when. How can I keep from owing them money at end of the year?

Answer: You can avoid advance tax credit repayments by reporting income changes as soon as possible. the government figures if no families report income changes during a single year, 38% of those receiving subsidies would owe the government a median of $857 each. If families report income changes in a timely manner, only 23% would owe money to the government and those that do would pay a median of $343 each.


Dear Anonymous … this is the reason why the health insurance deduction belongs back on the Schedule C where it used to be instead of the Form 1040 where it currently is. In 2013, it makes no difference on which form the premium deduction is taken, although theoretically, it provides a slightly greater benefit on Form 1040 for income tax purposes, and in reality it provides a different (better?) benefit on the Schedule C when calculating Self-Employment taxes on Form SE.

If the health insurance premium deduction is returned to the Schedule C, then the deduction can occur only once, will calculate into the MAGI only once, and will result in only one Premium Tax Credit. The IRS will undoubtedly realize this conundrum and resolve it before 2015.

But because no one knows how the 2014 Tax Return will be organized for at least 10 months, it is pure speculation to discuss the dog-chasing-its-tail scenario today. It has no genuine implication for the true 2014 premium tax credits.

At this point in time, you are only asked to “estimate” your 2014 income, obtain your advance premium tax credits if eligible, and life goes on until January 2015 when it’s time to file your 2014 tax return.

Obviously, as a self-employed person, you will have no real idea of what your 2014 income is until close to the end of 2014. If you underestimated your income on the CoveredCA application, then you will have to “give back” some of the unearned credit. The problem with that is today, the only announced mechanism for the “clawback” is through confiscation of one’s tax refund. Unless a self-employed person is making quarterly (or more frequent) tax deposits which could result in a refund, there is probably no refund to confiscate.

This whole mechanism has been goofed up from the get-go. For example, “Use 2012 income as the basis for 2014 premium tax credits” … how stupid is that advice?

Self-employed persons who are eligible for premium tax credits should voluntarily take only about 80% of what CoveredCA calculates as the available credit (you can also adjust that amount up or down at any time throughout the year). At tax filing time, any unused credits are refundable, even if a taxpayer has no tax liability, so it’s not a matter of use it or lose it.

You don’t have to take any of it in advance.

My understanding is that there is a paradox for self-employed people in that you use your portion of the premium to figure your AGI, but then your AGI determines your portion of the premium — and so it is a circular reference. In our case, estimating 2014 self-employed AGI, the AGI before taking a self-employed health insurance deduction is $25,106. The unsubsidized portion of the yearly premium for an AGI of $25,106, for the plan we want, is $2448 — everything I read online indicates that the law still allows this $2448 to be put in as the self-employed health insurance deduction. But that then lowers the AGI to $22,658 — which then makes our portion of the yearly premium $1536 — which then raises the AGI to $23,570 — which then puts us back into the bracket where the yearly premium is $2448 — which then lowers the AGI …. on and on. Do you have any insight on this? What are good options here for estimating 2014 AGI to determine our premiums? How is this paradox supposed to be solved?

Consumers are required to self-report income changes to Covered California within 30 calendar days from the date of change.

Applicants who are eligible for the advanced premium tax credit (“APTC”) can choose to forgo a percentage of the monthly credit (as Max Herr notes) if he/she anticipates a higher income in year 2014 thereby resulting in an APTC repayment when filing taxes in 2015.

I suggest adding lines 37 and 8b on your current tax form 1040 and estimating what that number will be for year 2014 when evaluating whether to accept the APTC.

When completing the application for health insurance through the exchange, the consumer signs an acknowledgment that he/she WILL REPORT any change in income to the exchange. Changes in income may have a significant impact on the tax credit at year end.

Forgoing the credit is a valid recommendation, but not necessarily the best one. If income goes up, the advance tax credit needs to be reduced or eliminated. But if income goes down, the credit can be increased.

The bigger problem is that no one will really know how much tax credit they are entitled to until tax time in 2015. There could be huge tax bills imposed on persons who never should have received a credit, and on others who received too much in the way of credits.

I don’t blame anyone who thinks this is confusing. It is.

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